Tax Credit in Your Biogas Projects Before the End of the Year. October 18 th, 2013

Transcription

1 Preserving the Use of the Investment Tax Credit in Your Biogas Projects Before the End of the Year October 18 th, :30am 12:10pm ET

2 Quick knotes Two Audio Options: Streaming Audio and Dial In. 1. Streaming Audio/Computer Speakers (Default) 2. Dial In: Use the Audio Panel (right side of screen) to see dial in instructions. Call in separately from your telephone. Ask questions using the Questions Panel on the right side of your screen. The recording of the webinar and the slides will be available after the event. Registrants will be notified by .

3 Promoting the use of Biogas and Anaerobic Digestion O 180+ Members from the U.S., Germany, Italy, Canada, UK O All Industry Sectors Represented Key Industry Goals: O Promote biogas markets, kt technologies and infrastructure t O Achieve policy parity O Promote as a best practice for environmental stewardship and greenhouse gas reduction

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5 Preserving the Investment Tax Credit prior to year-end October 18, 2013 Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International.

6 Baker Tilly Presenters Michael Land Director - Baker Tilly Capital michael.land@bakertilly.com Cory Wendt Senior Manager - Energy and Utilities cory.wendt@bakertilly.com 6

7 Agenda > Introduction > Recent IRS notices regarding Begun Construction - What are the rules? - What do they mean to a project owner? - How vendors can support meeting Begun Construction > Funding parties view of ITC planning > Questions and Answers 7

8 Baker Tilly at a Glance Baker Tilly is the 8 th largest accounting network worldwide > Top 20 largest firms in the U.S. consisting of more than 1,600 professionals > Established in 1931 > Offices throughout the Midwest and East Coast Chicago Detroit Minneapolis New York Washington DC Wisconsin 8

9 Diverse Clients Served We serve our clients through our industry teams Utilities > Nationwide energy practice: More than 40 years experience and over 300 energy and utility clients nationwide - electric, water, waste water, storm water, and gas utilities Renewable Energy > Dedicated Renewable Energy Group: Focused on development and financial solutions to get projects to the finish line in a way that maximizes client value and minimizes risk. We work with more than 40 active projects representing 1,500 MW. Manufacturers and Food & Beverage > Seventy-five years serving manufacturers: We serve more than 2,300 manufacturers and wholesale/distributors with over 230 in the Food and Beverage industry. State and Local Government > Work closely with municipalities and other non profits: Experience with municipal/government leaders allows us to understand diverse perspectives. We work with more than 150 higher education and research institutions across the United States. 9

10 BT Experience Since 2008, Baker Tilly has been involved with over $1.96 billion of renewable energy projects that are either operating or under construction > Over 15 biogas projects (food processors and agricultural feedstock) and $220 million of funding Our role: > Accessing Federal Incentives (ITC, PTC, 1603 grants, NMTC s) > Development Support Feedstock agreements, PPA s, heat sale agreements, etc. EPC, O&M and Technology procurement agreements > Financial Advisory and Funding Procurement 10

11 Energy Legislative Updates Biogas projects typically fall under the open loop biomass or trash facilities definition. Applies only to projects that use the biogas to produce electricity. ARRA passed in February, 2009: > Investment Tax Credit ( ITC ) equal to 30% of eligible project costs > Production Tax Credit equal to $.0115/kwh produced for 10 years - Indexed to inflation - 2 X more for closed loop biomass facilities > Required to be placed in service by December 31, 2013 American Taxpayer Relief Act of 2012 > ITC/PTC deadline extended - Deleted 12/31/13 placed in service requirement (no credit termination date) - Added 12/31/13 begun construction deadline > These changes do not apply to the 1603 grant program 11

12 Begun Construction What is Begun Construction > IRS has provided two notices during (April) (September) > Two tests, only have to meet one - Physical work of a significant nature (PWSN) - Safe Harbor equal to 5% of ITC eligible costs > Major change from 1603 guidance is continuous efforts requirement under the safe harbor test - Adds level of subjectivity to safe harbor test - Notice clarified this requirement by providing if a facility is placed in service by December 31, 2015 the continuous efforts requirement is deemed to be met. 12

13 Begun Construction Physical Work of a Significant Nature Rules > Binding written contract (if work done by someone other than taxpayer) - Binding if it is enforceable in the state where the facility is to be located and the contract doesn t limit damages to less than 5% of the contract price - Master contract can be assigned to multiple facilities by the taxpayer - Physical work can be on-site or off-site - Manufacturer must have reasonable method for tracking equipment produced for a project - Doesn t include work to produce equipment that is in inventory > Does not include preliminary activities (planning, financing, permits, clearing the site, etc.) > Must be a continuous program of construction - Allowable disruptions include force majeure, licensing and permitting delays, financing delay of less than 6 months, and others - Notice clarified this requirement by providing if a facility is placed in service by December 31, 2015 the continuous construction requirement is deemed to be met. 13

14 Begun Construction Safe Harbor Rules > Taxpayer must pay or incur 5% of the eligible costs of the facility by December Incur applies to accrual basis taxpayers (most), and requires that the product or service be provided to the taxpayer within 3 ½ months of payment (or that the taxpayer reasonably expects to have it provided within 3 ½ months) - Costs incurred by a vendor, pursuant to a binding written contract with the taxpayer may be treated as incurred by the taxpayer for purposes of this requirement - Does include preliminary activities (planning, financing, permits, clearing the site, etc.) to the extent they are allocated to cost basis of qualifying property - No exclusion of equipment from inventory > Taxpayer must make continuous efforts toward construction - Definition of continuous efforts is broader than for PWSN, includes planning, financing, making additional payments. - Allowable disruptions include force majeure, licensing and permitting delays, financing delay of less than 6 months, and others (same as PWSN) - Notice clarified this requirement by providing if a facility is placed in service by December 31, 2015 the continuous efforts requirement is deemed to be met. 14

15 Further IRS Guidance Transfer Rules > Notice states that as long as a facility has met the Begun Construction test via either the PWSN or Safe Harbor test, the owner of the facility when it is placed in service may claim the PTC or ITC > Doesn t require the taxpayer to be the owner at the time the facility begun construction - This is a significant change from prior guidance under the 1603 program whereby the transfer of ownership needed to be to a related party 15

16 Owner Perspective Plan and take action prior to December 31, 2013 > If you are confident you can place the project in service by December 31, 2015 then most of the subjectivity is gone from both tests - Still some subjectivity regarding what constitutes starting physical work activities under PWSN > If project timeline extends beyond December 31, 2015, then strong preference for meeting Safe Harbor - Take title to qualifying equipment prior to December 31, 2013 if possible. - If not possible, make sure purchase documents clearly l show reasonable expectation of delivery within 3 ½ months of payment Clearly l document actions that t have met Begun Construction ti > There is no pre-application to show that you ve met the Begun Construction test. Important to have actions clearly documented to support claiming the ITC after the facility is placed in service. > Makes sense to document continuous efforts in case the placed in service date slips past the December 31, 2013 deadline 16

17 What can Vendors do to support meeting Begun Construction? Support owner s need for correct documentation > Make sure contracts are binding > Demonstrate manufacturing activities for equipment began after the execution of the contract with the owner but before December 31, 2013 and are not items typically held in inventory (PWSN) > Include language demonstrating reasonable expectation of having equipment or service provided within 3 ½ months of payment (for Safe Harbor) > Create a process during construction to document activities that are relevant to continuous efforts 17

18 Funding Party Perspective Meeting Begun Construction tests are binary : you either get the ITC or you don t depending on meeting this test, no in between. So take the time to make your actions as compliant with the rules as possible. Depend on objective rules as much as possible 18

19 Questions & Answers Connect with us: Mike Land, Director Cory Wendt, Senior Manager

20 Disclosure Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment t plan, or arrangement to any other party. Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International. The information provided here is of a general nature and is not intended to address specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought Baker Tilly Virchow Krause, LLP 20

21 Q&A Ask questions using the Questions Panel on the right side of your screen. All questions and comments will be recorded and incorporated inthe webinar summaryreport report. Also, please a few moments to answer the survey questions. This Webinar will be available by Monday, June 24

22 Upcoming Events Wbi Webinars: Innovation Spotlight: New Feedstocks for Biogas Production Tuesday, November 12 th : 12:00pm 1:00pm Speakers: Tom Ferencevic, Yield Energy How to Avoid Digester Failures, Operating Errors And Find Financial Success Wednesday, December 4 th ; 12:00pm 1:00pm Speakers: John Fisher, SEH Inc. ABC Workshop: How to Avoid Digester Failures, Operating Errors And Find Financial Success October 20 th : 12:30pm 5:30pm REFOR13: Columbus, OH, Regency Hyatt BioCycle srefor13 The Official Conference of the American Biogas Council October 20 23, 2013 Columbus, OH, Hyatt Regency For more information, visit or call (202)

23 More Information Don t forget to fill out our survey! Sign up to receive ABC news on our website, Consider Joining i ABC Receive regulatory and policy intelligence Connect with other biogas and anaerobic digestion leaders Support the industry ss growth and outreach

24 Thank You Wayne Davis, ABC Chairman (781) Patrick Serfass, ABC Executive Director com (202)